Manas Chakravarty Moneycontrol News
The government’s first advance estimates put real GDP growth for 2018-19 at 7.2 percent. There will undoubtedly be a threadbare analysis of these numbers. Government supporters will point out it’s a big improvement from the growth rate last fiscal. Critics of the government will say it’s lower than the growth rate notched up in the first half of the year. There will be technical discussions about higher or lower bases. There will be impassioned debates about whether consumption is slowing down or whether investment is picking up. Folks will talk of the comeback of manufacturing and discuss whether the higher growth in the construction sector will mean more job creation. Why, we might also talk of the political impact of this GDP growth figure.
Analysts will, in short, do what they do -- make educated guesses, connect the dots and look for the underlying reality behind the numbers.
But before we do all that, let’s ask the most obvious question: just how reliable are these first advance estimates?
This is not the first time the Central Statistics Office has come up with first advance estimates of GDP. How did the first advance estimates for the last fiscal year 2017-18 compare with the revised numbers for that year now?
Well, the first advance estimate for 2017-18 had put real GDP growth at 6.5 percent. That has since been revised to 6.7 percent. That’s quite a close approximation, with the difference being a mere 0.2 percentage points. Not bad at all, one might be tempted to say.
But dig a little deeper and we’ll find that luck plays a big role in the initial GDP growth estimate being so near the final one. The growth estimates of the different sectors are sometimes way off the mark.
For example, real growth in gross value added for 2017-18 was 6.1 percent in the first advance estimate -- it’s now estimated to be 6.5 percent. Agriculture was initially supposed to grow by 2.4 percent -- it’s now estimated to have grown by 3.4 percent. The first advance estimates put manufacturing growth in 2017-18 at 4.6 percent -- it’s now estimated to have been 5.7 percent. Estimates of growth in the construction sector rose to 5.7 percent from 3.6 percent.
The expenditure side numbers show a similar pattern. Gross fixed capital formation was supposed to have grown 4.5 percent in the first advance estimates — it’s now estimated to have grown by 7.6 percent. Exports of goods and services were estimated to have grown 4.5 percent initially -- they’re now estimated to have grown 5.6 percent. The estimate of growth in government fixed capital expenditure rose to 10.9 percent from 8.5 percent. Import growth is now estimated at 12.4 percent from 10 percent.
This is not for a moment trying to take anything away from the importance of the work done by the Central Statistics Office. All that it means is that the estimates are just a first approximation, based, as the CSO itself has said, on extrapolation of trends in the first 6-8 months of the year. And if that is the case, the analysis of these numbers will differ little from the analyses already done on the first half GDP data.
What’s more, these trends may very well change in the second half, depending on many factors, including some over which the government has no control, such as oil prices, or the state of the global economy.
And, of course, as we get more and more certain about the data, the growth rates will change. To take one example, while the advance estimate of GDP growth for 2015-16 was 7.6 percent, the final growth rate came in at 8.2 percent.
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